Apple: JMP Says Hold On Hon Hai Deceleration

By Tiernan Ray

Shares of Apple (AAPL) are down $5.58, or 1.7%, at $339.85 after JMP Securities analyst Alex Gauna today cut his rating on the stock to Market Perform from Outperform, writing that the crisis in Japan threatens to compound what seems already to have been a deceleration in production at Apple’s main contract assembler, Hon Hai Precision.

Gauna cut his fiscal Q2 estimate — that’s the March quarter — from $23 billion to $22 billion, in line with Apple’s forecast, which the Street consensus is still at $23 billion. His EPS estimate drops from $5.49 to $5.10.

Data from the Taiwan Stock Exchange show a sharp deceleration in revenue growth in recent months, Gauna told me by phone this morning.

From 80% year-on-year revenue growth in December at Hon Hai, growth slowed to 36% in January and 26% in February, says Gauna.

“Hon Hai has shown a pretty material deceleration here,” says Gauna. While the firm doesn’t disclose the details of its Apple business, Gauna estimates Apple represents 25% or more of Hon Hai’s revenue.

Gauna is not sure what the deceleration is caused by, exactly, but he says it could involve a variety of things, including the “lack of lines for Verizon [Communications (VZ)] iPhone sales, or the seasonality around the iPod, or the freezing of iPad sales in advance of iPad 2.”

Gauna notes that it’s possible this quarter is seeing “merely in-line” sales of the iPhone, thanks to competition from units running Google’s (GOOG) “Android” operating system. He notes that Apple’s disclosure during the iPad 2 introduction that the company had sold 100 million iPhones worldwide suggested the quarter was tracking below his estimate of 15 million units for the quarter.

In other words, Gauna’s note is not really about last week’s earthquake very much at all, but rather about a possible disappointment in Apple’s March-quarter report that was building for some months.

In any event, “After a five-year track record of beat and raise an average of 23% [at Apple], we should take note of the deceleration,” says Gauna.

Not that Gauna has lost site of what appear to be blow-out results for the iPad, a product less than a year old that is already on its way to being 20% of sales, as BTIG Research’s Walter Piecyknotes today.

Gauna is waiting on his two iPad 2 orders himself, and notes the “intoxicating appeal” of the company’s products. “You can’t order just one, they’re so much in demand in the household.”

Apple, apparently struggling with demand, on Tuesday again stretched out the expected delivery time frame for iPad 2 orders to four to five weeks.

“The growth is a still going to feel very, very good. 20% year on year growth is very good compared to everywhere else.”

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There are 48 comments

MARCH 16, 2011 10:19 A.M.

Mark wrote:

"This is still a star..." and then he downgrades it. I would never pay him for stock advice, and I believe he will be proven Very wrong when the q report comes out.

MARCH 16, 2011 10:21 A.M.

Greg wrote:

I understand the analysts misgivings, and don't take issue with any of his arguments. However, it seems ridiculous to me that while downgrading his outlook to 20% growth, he is calling that "market perform"... am I missing something?

MARCH 16, 2011 10:31 A.M.

ray on top of things wrote:

aapl is coming down and it should look at the valuations.
If you can't tell the media has done a number on the stock price moving it way past fare value. Pleases
Smart money is locking in prices and selling aapl
and buying MMI
Just look at these valuations of MMI They are 1/2 the others
MMI android cell and XOOM is gaining traction.
MMI is growing
Price/Sales (ttm): 0.60
Revenue Per Share (ttm): 38.94
MMI current price $ 23.46
Compare these numbers to the competition s,rimm,nok,aapl,
IMO MMI is a gift at $ 23.45 IMO 6 month price target $48.00

MARCH 16, 2011 10:31 A.M.

Ray is a clown wrote:

Ray, I know you own MMI, but get real. You've been pumping this for some time. Don't you see that everyone prefers the superior Apple products? No? Then you should have not invested in MMI :) Your loss.

MARCH 16, 2011 10:35 A.M.

Batman, NYC wrote:

A lot of speculation that seems to be targeted at manipulating the stock.

MARCH 16, 2011 10:36 A.M.

Joe wrote:

Dumb A_ _

MARCH 16, 2011 10:37 A.M.

Dave wrote:

This guy must either have been drunk or a moron! The whole world knows how hot iPad2 is now, maybe he lives in a cave? He also contradict in his note here issuing a downgrade while phraising Apple sales. What the hell is that?

MARCH 16, 2011 10:39 A.M.

Jim wrote:

Is this guy nuts?

MARCH 16, 2011 10:44 A.M.

Henry 3 Dogg wrote:

"...or the seasonality around the iPod, or the freezing of iPad sales in advance of iPad 2"

so we better cut Apple if a seasonal product is seasonal, or a new product replaces an old one.

MARCH 16, 2011 10:50 A.M.

Mark wrote:

Ah, Henry 3 Dog there you are.... thought you might jump on this one. I was at the Apple Store in Boston last week and watched a line wrap around 4 city blocks for the iPad! LOL! This guy got a batch of good Ganja. What's his name again? Guano the bat-turd?

MARCH 16, 2011 10:57 A.M.

Yawn wrote:

ZZZZZZZZZZZZZZZZZZZZZZzzzzzzzzzzzzzzzzzzz

MARCH 16, 2011 11:02 A.M.

Whatever wrote:

This ranks up there with Toni's stupid declaration of the missing iphone's being stored in some secret location! This analyst is a complete moron & Apple will once again blow out earnings come April.

MARCH 16, 2011 11:07 A.M.

mavilo wrote:

he wrote this downgrade non-sense on his ipad...
i'm sure

MARCH 16, 2011 11:13 A.M.

Jeez... wrote:

All these AAPL heads....an analyst, who earns his paycheck by doing the analysis for investors like all of us, is getting insulted by lemmings because he downgraded AAPL to a still favorable rating? He makes some very good points, and I'd like to add one of my own:

Consider the size of AAPL and its sales and also consider how much more difficult it is to continually increase at 20% per quarter when revenues are so large. AAPL already has 100's of millions of users, some of whom do not buy the re-released products every single year; and meanwhile it is increasingly difficult for a company to continually add 20% of new subscribers every quarter when the company is at the size of AAPL. Somewhat like the law of diminishing returns...

Now, you AAPL heads may begin flaming me lol

MARCH 16, 2011 11:15 A.M.

WES wrote:

75% of the companies sales come from other vendors according to the article. How does the analyst know the slowdown has anything to do with Apple? This is really poor research.

MARCH 16, 2011 11:16 A.M.

Apple Turnover wrote:

Motorola Mobility is a clunker. This stock has been dropping even faster than Apple and nobody is waiting on line for the Xoom tablet. Motorola was about $40 fresh on the split and now it's around $23. MMI is crap, pure crap. Motorola has been crap for years. Still, both Motorola and Apple are going down because investors think both of these investments stink. One because the products suck, the other because it's highly overpriced in this economy.

MARCH 16, 2011 11:57 A.M.

Chris wrote:

Okay. This analyst should be fired- or perhaps arrested. This whole issue wreaks of manipulation of the stock. I believe options expire on Friday, and obviously there is a concerted effort to get the stock down to a certain "strike" price. Alex, you should be ashamed of yourself.

Look at Tech Daily articles today: One analyst ups price target form 375 to 450. Approx. 30 mins. later this joker Alex down grades it to market perform, after commenting on how in demand the products are. Yes Alex, Apple is a star, but you my friend are not. You should ashamed for contributing to the "short" effort. Try looking in the mirror, and see if you have any dignity left.

MARCH 16, 2011 12:04 P.M.

Pridon wrote:

Did he check Pegatron's growth rate? According to WSJ, Apple began dual sourcing iPhones middle of last year. On the other hand Guano may be the canary in the coal mine. Seems Apple is down too much for a downgrade from an second tier firm. In any case its been a painful day for the Apple longs like myself.

MARCH 16, 2011 12:05 P.M.

j jones wrote:

IIs there a problem with aapl? hell no! This is a good example of some ----head analyst spreading alarm when there is none. costing us all a bunch of money.

MARCH 16, 2011 12:08 P.M.

Anonymous wrote:

“We don’t know the source of the Hon Hai deceleration,”
How about Apple has another supplier for iPad 2? How about Hon Hai makes products for Microsoft-PC’s, etc. and iPad 2 is sold out and eating into netbooks volumes? How about Microsoft-PC component suppliers from Japan aren’t shipping? Why does he take his delusions out on Apple? He admits that he was guessing. He needs to be fired and JMP Securities sued for the loss in Apple stock value.

MARCH 16, 2011 12:12 P.M.

Shai'tan wrote:

Apple has many different suppliers and are building factories in China. How do we not know that the slow down in Hon Hai is not caused by a shift of manufacturing to other venues?

MARCH 16, 2011 12:28 P.M.

Techtrader10 wrote:

"JPM Securities"?? Never heard of this outfit. This is manipulation plain and simple. If this same analyst issued an upgrade for Apple, the stock wouldn't budge.

MARCH 16, 2011 12:30 P.M.

@MMI Shill wrote:

Still trying to pump that dog of a stock you bought? Sorry, but it’s a lost cause, pal. Have you seen a chart for your investment recently? It looks like the altitude trace of a plane crash. Nice pick, idiot.

MARCH 16, 2011 12:30 P.M.

krichard wrote:

Chris, I don't know who you are but you are spot on!!! This is all about fraud, stock manipulation. This analyst made this article up from whole cloth, there are no facts cited that can be attribute to Apple. My understanding is that Apple was going to move some product from this supplier after the unrest last year at their plants when someone committed suicide over wages and conditions, but that said this is all about creating profits. JMP has done this before, put out misinformation and creaste a story around assumption and speculation to move this stock. When the quarter comes out we will again find this is fraud, just like last time. The real question is what is going to be done about it??!!! This is a second rate story and downgrade from a thirdrate analyst that's done to support hedge fund clients because they know this stock is so bouyant because of it's real performance they can keep it in a $30-35 range with misinformation and simply mint money. Why doesn't anyone ever ask how can Amazon carry a 67 pe which might be a bit high and Apple carries a 20 pe?? It's because smart people know Amazon is a one way ticket, it's going up once and it will become dead money at some point like Microsoft. Apple on the other hand has a long ahead of itself based on what their obvious strategy is, so that means Apple will provide the most returns for hedge funds if they keep it in a range well below where it's pe justifies it being. It's way too easy!!! This guy should be doing a "perp" walk, but he won't......just follow they money, it's all a scam!!!

If you look at the logic above, then it is clear that this analyst is either manipulating the market, extremely lazy or totally incompetent.

MARCH 16, 2011 1:40 P.M.

PlayBook wrote:

RIM will destroy all the comptition. Mike L is the smartest man on this planet. I don't see Apple and Google surviving the BlackBerry PlayBook attack this year! Our RIM managemnt is the most creative people of all time.

MARCH 16, 2011 2:10 P.M.

Minneapolis iPad Guy wrote:

A slowdown by the supplier is good for APPLE. It means they can focus more heavily on Apple and shift production over to Apple products

MARCH 16, 2011 4:02 P.M.

Anonymous wrote:

EVER OCCUR TO ANYONE THAT NOKIA AMONG OTHERS ALSO USES HON HAI?!

MARCH 16, 2011 6:26 P.M.

Apple Sucks wrote:

All you dumb-asses who Love Apple will soon be Broke

HA HA HA!!!

MARCH 16, 2011 6:27 P.M.

HAHA wrote:

Apple SUCKS!!!!

MARCH 16, 2011 6:29 P.M.

QNX wrote:

Apple will die soon and I will be so happy!

MARCH 16, 2011 6:33 P.M.

Jonas wrote:

Where is James Apple in this? Did he crash in a car when he heard the news, or go bankrupt? You guys will soon see a New Holy Grail. Apple will not survive, they were just tring to take your money befoe the Star of the show comes out!

MARCH 16, 2011 6:41 P.M.

Lola wrote:

I advise you guys bail on Apple. The economy is bad, and with it getting worse with Gas prices and the Carriers going to tiered plans. Android and Apple will not survive with their Data Hog Crap. People will go to effecient phones. As Gas prices rise so will tiered plans... One Company will survive and they are the smart people in Canada as I refer to as the Electric Company of the Future! As for the Playbook, it will blow Apple away in terms of Battery Life and Usability...

MARCH 16, 2011 7:11 P.M.

@RIMjobbers wrote:

Hope you delusional idiots realize that all sane people who read your moronic comments just laugh and shake their head. "Apple will die soon." "RIM will destroy all the competition." Seriously? Is this the best you fools can come up with? Pretty sad stuff.

MARCH 16, 2011 7:15 P.M.

Jonas wrote:

Keep believing in Apple, You Stupid Apple Bobber! Get broke and wither away with Apple and the Boss...

MARCH 16, 2011 7:20 P.M.

@Jonas wrote:

I've owned Apple stock since it was $14/share, and that was prior to two 2-1 splits. It would take a collapse of Western civilization for me to "get broke" from my investment in the greatest tech company on the planet. But keep spouting off nonsense like the juvenile idiot you clearly are.

The Sun is also a star that is burning out...but none of us will ever see it happen. Same holds true for Apple.

MARCH 16, 2011 8:33 P.M.

@Quincy wrote:

Wow...120 CLAIMED hours of MP3 playback? Apple's iPod Touch will give you 40 hours of music if that's what someone really cares about. Call us when the RIM PlayToy PROVES that it can deliver 10+ hours of video playback and internet...oh, and that's WITH Flash running, right? Good luck.

MARCH 17, 2011 12:54 A.M.

michael wrote:

jmm securities alex gauna should be investigated by sec because he had his information weeks ago and waited until today when the market was on edge to do his down grade.a little know brokage like jpm would of never moved the stock like he did today i feel this was a calculated move with information that isnt accurate.mr gauna i feel knew with market turmoil he could move the stock down and if we look deep enough we will find someone he is affilated with made money playing the other side.this is my opinion but he is a no name anaylist working for a no name brokerage.read his comments at end of his report he still stills growth of 20% year over year and he is waiting for 2 ipad 2 to be delivered he did this to cover his ass.

MARCH 17, 2011 1:12 A.M.

steven wrote:

if iam to do business with jpm mr.guana has to be terminated.i have a family trust valued at 15 million sorry after today 11 million they have been calling me for months to move my money to them.i will never do busines if they have people like guana working for them and i will let them know tomorrow if he is there my money will never be there.

MARCH 17, 2011 5:25 A.M.

Anonymous wrote:

The Rim comments are all from the same loser. Hope he sticks around long enough without burning out to see the Playbook DOA release. Yuckyuckyuck.

APRIL 21, 2011 2:41 A.M.

Quantum Inv wrote:

Alex Gauna has zero credibility - he ought to be heavily fined, jailed, and demoted for his incompetent, destructive, and baseless FUD.

APRIL 21, 2011 2:42 A.M.

Robert Downing wrote:

Lola wrote:
I advise you guys bail on Apple. The economy is bad, and with it getting worse with Gas prices and the Carriers going to tiered plans. Android and Apple will not survive with their Data Hog Crap. People will go to effecient phones. As Gas prices rise so will tiered plans… One Company will survive and they are the smart people in Canada as I refer to as the Electric Company of the Future! As for the Playbook, it will blow Apple away in terms of Battery Life and Usability…

LOL.

JULY 19, 2011 5:23 P.M.

Sam Jameson wrote:

Alex,

Alex Gauna?

Hello?

Q3 deceleration, really?

Your irresponsible reporting, inept research, and lousy excuse of analytical skills for the past two quarters will go down in history.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.